Legal and Finance: Cash Flow Is King - for the Taxman Property Law Common Touch Alert

Companies or groups with taxable profits of pounds 1.5 million or more for two consecutive years are soon to find out that cash flow is king - but in favour of the Inland Revenue.

Rules relating to the payment of tax by instalments, which were brought in under the Corporate Tax Self Assessment regime, will apply to 100 per cent of a company's taxable profits for accounting periods ending on or after July 1 and mean that payments are made during the tax year, rather than after its end.

John Hodgson, tax partner at Grant Thornton in Birmingham, said: 'The Revenue obviously saw the boost to its cash flow resulting from personal tax selfassessment and when CTSA was brought in, a similar benefit for corporation tax was intended.

'To make the blow a little softer, the new rules were phased in following their introduction in July 1999, whereby in year one, 60 per cent of taxable profits were paid in instalments. In year two, 72 per cent of profits were affected and year three, 88 per cent. We are now at the stage when 100 per cent will be payable in this way.'

Businesses with seasonal cash flows will be particularly hit and need to make provision for the four regular payments by planning ahead.

Mr Hodgson added: 'As ever, accurate record keeping is essential so that companies can justify the payments made on account, and it would certainly add insult to injury to pay more tax than necessary, so there's an added incentive to get the figures right. Plus, good quality management accounting systems will ensure that directors are in possession of up to date information regarding the company's cash position. …

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